Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Dividends on preferred and common stock
Yukon Bike Corp. manufactures mountain bikes and distributes them through retail outlets in Canada, Montana, Idaho, Oregon, and Washington. Yukon Bike Corp. declared the following annual dividends over a six-year period ending December 31 of each year: Year 1, $28,000; Year 2, $44,000; Year 3, $48,000; Year 4, $60,000; Year 5, $76,000; and Year 6, $140,000. During the entire period, the outstanding stock of the company was composed of 40,000 shares of 2% preferred stock, $65 par, and 50,000 shares of common stock, $1 par.
Assuming that the preferred slock was sold at $57.50 and common stock was sold at $5.00 at the beginning of the six-year period, calculate the average annual percentage return on initial shareholders' investment, based on the average annual dividend per share (a) for preferred stock and (I)) for common stock.

To determine

Concept Introduction:

Stocks (Common Stock and Preferred Stock):

There are two types of the share capital of a company. Common Stock represents the Common shares issued to the shareholders and preferred stock represents the preference shares issued. Preference shares are given preference in payment of dividends and repayment of capital. Common shareholders get the inbuilt right to vote in decisions of the company and preference shareholders generally do not get this right but they may get voting rights with special provisions.

To Calculate:

The Average annual % returns for each class of shares


The Average annual % returns for each class of shares is calculated as follows:

    Year Total Dividends Preferred StockCommon Dividend
    Total Per Share Total Per Share
    A B=(40000*2%*65)C =B/40000 D=A-BE=D/50000
    Year 1 $ 28,000 $ 28,000 $0.70 $ - $ -
    Year 2 $ 44,000 $ 44,000 $1.10 $ - $ -
    Year 3 $ 48,000 $ 48,000 $1...

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